Thursday, January 21, 2016

Today's Headlines

  • Draghi Readies for ECB Action in March as Global Risks Escalate. (video) Mario Draghi set the euro area up for expanded monetary stimulus for the third time in a year as China’s economic slowdown and market volatility threaten to derail the region’s recovery. The single currency slid. The European Central Bank president said officials will review their programs at the next policy session in March and there are “no limits” on how far they’re willing to deploy measures within their mandate. The Governing Council kept interest rates unchanged at record lows at its meeting in Frankfurt on Thursday. “We are adapting our  instruments to the changing conditions,” Draghi said. “The credibility of the ECB would be harmed if we weren’t ready to revise the monetary-policy stance.”
  • Chinese Stocks Slump as Cash Injection Fails to Lift Markets. (video) Chinese stocks tumbled as the central bank’s biggest cash injection in the financial system in three years failed to ease concern that the nation’s economic slowdown will deepen. The Shanghai Composite Index slid 3.2 percent to 2,880.48 at the close. Hong Kong’s Hang Seng China Enterprises dropped 2.2 percent to the lowest level since March 2009. Hong Kong stocks fell below the value of their net assets for the first time since 1998. Property developers led declines on concern higher borrowing costs will crimp earnings after the three-month Hong Kong Inter-Bank Offered Rate climbed to the highest level in more than six years. 
  • China Stock Rout Seen Getting Uglier as Derivative Trigger Looms. (video) If Bank of America Corp. is right, Chinese stocks in Hong Kong are poised for a fresh wave of selling. That’s because the benchmark Hang Seng China Enterprises Index is trading at a level that forces investment banks to pare back their bullish futures positions, according to William Chan, the head of Asia Pacific equity derivatives research at BofA’s Merrill Lynch unit in Hong Kong. The trades, tied to banks’ issuance of structured products, are likely to start unwinding when the index falls through 8,000, a level it breached on a closing basis Thursday for the first time since 2009. Banks have purchased futures on the gauge of so-called H shares to hedge exposure to structured products that they’ve sold to clients, according to Chan. Many of those products have a “knock-in” feature at the 8,000 level that will spur banks to cut futures positions to maintain the effectiveness of their hedges, he said. Additional pressure points may also come at lower levels, Chan said. “As the market goes lower from here, the downward move may accelerate,” he said. “There will be a large amount of hedging in futures which dealers need to unwind.”
  • Hong Kong Stock Selloff Is the Most Intense Since 2008: Chart. (video) Hong Kong’s stock investors are running out of places to turn, with the most shares trading at year-lows since the depths of the global financial crisis. The proportion of Hang Seng Index members hitting new 52-week lows rose to 64 percent on Wednesday, the highest since October 2008.
  • 'Too Early' for Further BOJ Stimulus, Abe Aide Shibayama Says. It’s too soon for the Bank of Japan to take further stimulus measures because the rout in the stock market may be temporary and its causes aren’t domestic, an aide to Prime Minister Shinzo Abe said Thursday. “If you ask whether now is the time to act, I think it is still too early to make that decision,” ruling Liberal Democratic Party lawmaker Masahiko Shibayama, who serves as a special advisor to Abe, said in an interview in Tokyo Thursday. “I think we still have time to evaluate the situation.”
  • Watchmakers Won't Always Have Paris as Luxury Sales Stall Out. One year after a shock currency move roiled Swiss watchmakers, the industry now faces a fresh litany of problems that’s forced the craftsmen of luxury timepieces into an unfamiliar role: traveling salesmen.
  • Threats of terrorism from Paris to Jakarta, vanishing stock market wealth and the decline of Hong Kong as a luxury hub will make 2016 an even tougher year for watchmakers, executives said at Geneva’s watch fair this week. The arrival of the Apple Watch has also put them on the defensive, prompting responses ranging from innovative to cheeky to defiance. The waning demand means salesmen for brands such as Greubel Forsey have had to hit the road more to find clients. “We expect 2016 to be very, very difficult,” Vincent Perriard, chief executive officer of watchmaker HYT, said on the grounds of the show. “One of our points of sale in Paris sold no watches at all, from any brand, from the day of the terrorist attack until now. Zero sales.”
  • Deutsche Bank(DB) Drops as Investment Bank Revenue Concerns MountDeutsche Bank AG, which runs Europe’s largest investment bank, slumped the most in five months in Frankfurt trading after saying the securities unit drove a decline in fourth-quarter revenue, casting doubt on the company’s ability to meet profit targets. The shares fell 8.6 percent to 16.20 euros as of 10:57 a.m. in Frankfurt, the biggest drop in the 46-member Stoxx Europe 600 Banks Index. Deutsche Bank’s 28 percent slide this year means it’s the worst-valued global bank. The Frankfurt-based lender late on Wednesday said it expects to post a 2.1 billion-euro ($2.3 billion) loss for the fourth quarter after setting aside more money for litigation and restructuring.
  • Bank of Russia Chief Axes Davos Trip as Ruble Speculators Pounce. (video) Russia’s central bank governor canceled a visit to the World Economic Forum as the ruble’s historic fall accelerated for a second day after speculators pounced on her comments that policy makers don’t intend to intervene in the market. The Bank of Russia’s press service gave no reason for Governor Elvira Nabiullina’s decision not to travel to Davos on a day that the ruble declined as much as 5.3 percent to 85.999 per dollar, the most in emerging markets. Five-year government bonds slid, lifting the yield 3 basis points to 10.95 percent, the highest since October
  • European Stocks Rebound After Draghi Says ECB May Review Stance. European stocks rebounded from a 15-month low after Mario Draghi said the European Central Bank may reconsider its monetary policy stance in March. A weakening in the euro buoyed exporters and commodity producers, after Draghi noted an increase in downside risks this year and said there were no limits to the central bank’s actions within mandate. The Stoxx Europe 600 Index closed 1.9 percent higher, the biggest advance since Dec. 23, after an intraday gain of as much as 2.5 percent.
  • 1 Country, 1 Promise: 1 Million Barrels a Day. Now free to sell oil, Iran has set itself a huge goal. But are its oil fields in condition to reach it?
  • Credit Strains Intensifying as Carlyle, Staples Meet Resistance. The riskiest parts of corporate debt markets are inching closer to panic mode. Just ask Mark Heron, head of distressed debt at hedge fund Ellington Management Group. A dealer offered to sell him a loan at 97 cents on the dollar this week. Heron said he would buy it at 88 cents, a low-ball bid he thought would end the conversation. To his surprise, the dealer sold him the junk-rated loan at his price. "You get the sense that there is a broader market issue," Heron said.
  • Market Turmoil Could Endure for a While, Morgan Stanley CEO Says. (video) The global equity meltdown that’s roiled markets from the U.S. to China could last a while, Morgan Stanley Chief Executive Officer James Gorman said.“The violence of the correction would suggest it’s certainly not temporary,” Gorman said Thursday in an interview on Bloomberg Television at the World Economic Forum in Davos. “On the other hand, the absence of the fundamentals to support it suggests it might be. What we’re seeing here is a very strong market reaction against a background of frankly very solid global economic growth.”
  • Union Pacific(UNP) Tumbles to Lowest Since 2013 on Earnings Miss. Union Pacific Corp. tumbled to the lowest in almost three years as a worsening freight slump caused the railroad to fall short of profit estimates for the third time in a year. The cargo decline will continue this year, with volumes in the first quarter expected to drop in the “mid single digits,” Union Pacific said on a conference call Thursday. Freight numbers for all of 2016 will be “slightly down,” Chief Financial Officer Rob Knight said.
  • Sports Authority(TSA) Said to Struggle to Avoid Bankruptcy Filing.
  • BofA(BAC) CEO Moynihan Sees More Job Cuts as Bank Reduces Costs.
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